Bellevue Healthcare Strategy (Lux)

After the rocky ride during the first two months of the year, March turned out to be a much more pleasing month for most stock markets. The global all-share MSCI World Index advanced 3.1% (in CHF). Healthcare stocks performed even better: the broad MSCI World Healthcare Index rose 5.2% mom. The Bellevue Healthcare Strategy Fund (Lux) delivered a likewise pleasing monthly return of 4.9% (I shares).
 
The good performance of healthcare stocks can be traced to increasing investor awareness of the industry-specific fallout of the Ukraine war. Repeating a sentence from last month’s Factsheet, Russia and Ukraine are not important countries for most healthcare companies in terms of suppliers or sales. Drug developers showed particularly strong returns in March. The NYSE Arca Pharmaceutical Index gained 7.1% (in CHF). The fund's good performance in March despite its underweighting of large cap pharma stocks was fueled by its biotech investments, for example in Vertex (+13.9%), Horizon Therapeutics (+15.8%) and Halozyme (+12.9%). Besides the general tailwind drug makers enjoyed in March, all three of the aforementioned companies additionally profited from positive readouts of clinical trials of drugs they are developing on their own or with a partner, pleasing regulatory news (Horizon Therapeutics), and a new licensing deal (Halozyme).

The investment process for the Bellevue Healthcare Strategy Fund resembles the rules-based investment process that Bellevue has successfully applied since 2007. In this approach, the 40 most attractive stocks in the healthcare sector worldwide are selected every six months. The Bellevue Healthcare team screens about 600 of the 4000 listed companies in the healthcare sector worldwide based on four quantitative criteria (PEG valuation, price/sales, sales growth and EBITDA/sales) and four qualitative criteria (assessing the company's management, product pipeline, operating risks and country-related risks). The ten most promising stocks from four different regions – Western Europe, North America, Japan/Australia and emerging markets – are selected. The maximum weighting of the region with the highest overall score, which is usually North America, is capped at 35% during the periodic rebalancing, which increases the emphasis given to emerging markets. Companies with rich valuations and low growth rates will rarely be selected for the portfolio. Mid cap stocks have typically represented 60-80% and the Asia region approximately one-third of the portfolio. Pharmaceutical stocks are clearly underweighted compared to the MSCI World Healthcare Index. Bellevue has applied this investment approach since April of 2007 and it is used to compile the Adamant Global Healthcare Index.